Professional Documents
Culture Documents
2d 347
During the past two decades, franchising has become a common means of
marketing products and services, but our legal system has not yet settled the
principles that define the liabilities of franchisors for injuries sustained by
customers of their franchisees. This diversity case requires us to interpret the
theories of tort and contract liability which Michigan law allows a jury to
consider when deciding whether an injured purchaser is entitled to recover
against the franchisor of a product.
The defendant, the Seven-Up Company, appeals from a $150,000 jury verdict
awarded for injuries caused by an exploding 7-Up bottle. The plaintiff removed
a cardboard carton containing six bottles of 7-Up from a grocery shelf, put it
under her arm and headed for the check-out counter of the grocery store. She
was blinded in one eye when a bottle slipped out of the carton, fell on the floor
and exploded, causing a piece of glass to strike her eye as she looked down.
The 7-Up carton was a so-called "over-the-crown" or "neck-thru" carton
designed to be held from the top and made without a strip on the sides of the
carton which would prevent a bottle from slipping out if held underneath.
3
The carton was designed and manufactured by Olinkraft, Inc. Olinkraft sold it
to the Brooks Bottling Company, a franchisee of the defendant, Seven-Up
Company. Seven-Up retains the right to approve the design of articles used by
the bottler, including cartons. The franchise agreement between Seven-Up and
the Brooks Bottling Company requires that "cases, bottles, and crowns used for
7-Up will be of a type . . . and design approved by the 7-Up Company," and
"any advertising . . . material . . . must be approved by the 7-Up Company
before its use by the bottler."
Seven-Up denied liability, insisting its approval of the cartons was only of the
"graphics" and for the purpose of assuring that its trademark was properly
displayed. It filed a third-party complaint against the bottler, the carton
manufacturer and the grocer for indemnity or contribution if plaintiff were
successful against Seven-Up. Upon stipulation, the grocer was subsequently
dismissed. At the beginning of trial, the District Court severed Seven-Up's
third-party complaint against the bottler and the carton manufacturer.
The District Judge submitted the case to the jury on five related theories of
product liability a negligence theory, three strict liability theories and one
contract theory:
7 Negligence. Plaintiff may recover from a franchisor for negligence without regard
1.
to privity.
8 "Implied Warranty." Plaintiff may recover from a franchisor for "breach of
2.
implied warranty of fitness" if the product in question, the 7-Up carton, was
defective."1
9 "Inherently Dangerous." Plaintiff may recover if the jury finds that 7-Up "bottles
3.
are inherently dangerous" and that the franchisor failed to warn the consumer of the
danger. 2
10"Opportunity to Change Design." Plaintiff may recover for an injury resulting
4.
from the design of a product (the 7-Up carton) if the franchisor did not exercise an
"opportunity to avoid causing injuries" by altering the design of the product.3
11Contract. Plaintiff may recover as a third-party beneficiary of the franchise
5.
agreement between 7-Up and the bottler.4
12
We do not know which of these theories the jury accepted because it returned a
general verdict. On appeal, Seven-Up argues that all of the theories are wrong
except negligence. We begin our consideration of this diversity case by
acknowledging that the views of an experienced District Judge on questions
concerning the law of the state in which he sits are entitled to great respect.
14
Michigan appellate courts have not had the occasion to consider these
principles in the context of franchising.10 It appears to be a new question not
generally considered in other jurisdictions.11 The franchise system is a method
of selling products and services identified by a particular trade name which may
be associated with a patent, a trade secret, a particular product design or
management expertise. The franchisee usually purchases some products from
the franchisor in this case, the 7-Up syrup and makes royalty payments on the
basis of units sold, in exchange for the right to offer products for sale under the
trademark. The franchise agreement establishes the relationship between the
parties and usually regulates the quality of the product, sales territory, the
advertising and other details; and it usually requires that certain supplies be
purchased from the franchisor.12
15
16
17
In this case, the Seven-Up Company not only floated its franchisee and the
bottles of its carbonated soft drink into the so-called "stream of commerce."16
The Company also assumed and exercised a degree of control over the "type,
style, size and design" of the carton in which its product was to be marketed.17
The carton was submitted to Seven-Up for inspection. With knowledge of its
design, Seven-Up consented to the entry in commerce of the carton from which
the bottle fell, causing the injury. The franchisor's sponsorship, management
and control of the system for distributing 7-Up, plus its specific consent to the
use of the carton, in our view, places the franchisor in the position of a supplier
of the product for purposes of tort liability.
18
We are not saying that the Seven-Up Company is absolutely liable as an insurer
of the safety of the carton under the theory of implied warranty, simply by
virtue of its status as a franchisor.18 In the first place, under Michigan's theory
of implied warranty of fitness, the carton must be found to be "defective," or as
the District Judge more accurately put it, "not reasonably safe."19 It must be
harmful or unsafe because something is wrong with it, and the jury must so
find. Moreover, here the franchisor inspected the carton and approved it. Thus,
we need not reach the question whether the franchisor would carry the
liabilities of a supplier if it had not been made aware of the product and given
the opportunity to assess the risks.
19
20
These are factors Michigan courts have relied on in the past in determining who
may be held liable for breach of implied warranty of fitness in other products
liability situations.21 We believe Michigan courts would apply these principles
in the franchising situation presented by this case, and we therefore conclude
that the case was correctly submitted to the jury to assess liability for breach of
implied warranty.22
The District Court instructed the jury that it could also find that "carbonated
beverages . . . bottles are inherently dangerous" and, if so, that a franchisor in
the position of a supplier has "a duty to warn of a known inherent danger in its
product . . . not readily apparent to the user."
23
We can find no basis for suggesting that Michigan courts will extend the
standard of absolute liability for "inherently dangerous" activity to the
distribution of bottles containing carbonated beverages. The Michigan cases
imposing absolute liability for "extra-hazardous" or "inherently dangerous"
activity have, in the main, involved blasting, the collection of a quantity of
water in a dangerous location, storage of inflammable liquids, and like
activities.23 Michigan courts and federal courts applying Michigan law have
apparently declined to extend this standard to flooding due to a dam in the
natural bed of a stream, 24 or to the production and sale of electricity,25 and have
always based liability in exploding bottle cases on negligence or implied
warranty.26 We therefore think it was error for the court to instruct the jury that
26
The difficulty with the "opportunity to change the design" instruction is that it
is not stated as a factor to be considered in connection with the negligence and
implied warranty theories to which it logically relates. Read as a separate
charge, it could be understood as directing a verdict for the plaintiff if the jury
found that the defendant had the opportunity to change the design and eliminate
the risk of injury. In this portion of the court's charge, the jury was not told that
to impose liability it must also find the crucial element that the product was
defective or not reasonably safe.
27
It may be that the District Court, and the jury, understood that this element of
defectiveness was implicit in the words "opportunity to avoid causing injuries."
But it is equally likely that the jury understood the instruction to permit a
finding of liability simply because Seven-Up failed to make the carton
accident-proof even though the carton was not "defective." As we have already
said, we do not believe Michigan law goes this far. It does not establish a
standard of absolute liability or make the supplier an insurer against accidents
caused by ordinary products.
29
It is clear from the contract itself 27 and the evidence in the record that the
bottler did not extract a promise from Seven-Up to perform actions directly
In light of our disposition of this appeal on the issues of liability, the only other
question we need to consider is the question of severance on retrial of the case.
Seven-Up argues that the third-party claims should not have been severed. We
disagree.
33
The District Court did not abuse its discretion under Rules 14(a)30 and 42(b),31
Fed.R.Civ.P., in severing for separate trial Seven-Up's third-party claim against
the bottling company and the carton manufacturer. Presentation of the case in a
joint trial, including presentation of the third-party indemnity and contribution
claims, could require the parties, the jury and the court to address and consider
the following basic issues: (1) Seven-Up's liability on theories of negligence
35
For the reasons stated above, the judgment entered on the jury verdict is
reversed and the case is remanded to the District Court for a new trial.
To the extent that "all of the evidence presented has supported the proposition
that (bottles) . . . containing Seven-Up carbonated beverages had a foreseeable
propensity to explode upon impact," the District Judge instructed the jury that it
could "find that such bottles are inherently dangerous." He further instructed
the jury that a manufacturer has a "duty to warn of a known inherent danger in
its product, or in its contemplated use not readily apparent to the user."
At the end of his summary of plaintiff's theories of liability, the District Judge
charged:
If you find that the Defendant Seven-Up Company had an opportunity to avoid
causing injuries to the Plaintiff, Sharon Proos Kosters, by designing, inspecting,
testing the containers which it approved for use by its franchisees' bottlers and
failed to use this opportunity and such failure resulted in injury to the Plaintiff,
the Defendant would be liable to the Plaintiff.
The District Judge instructed the jury that if it found the franchise agreement
between Seven-Up and Brooks Bottling Co. "necessarily and directly
benefitted" consumers of 7-Up, it must find that the Plaintiff was a third-party
beneficiary of the contract and entitled to sue for its breach. In construing the
agreement "to determine whether it places a duty upon Seven-Up to provide
safe and structural(ly) sound beverage bottle containers" as well as "to
determine whether the Plaintiff was a third-party beneficiary of that contract,"
the court instructed the jury to "look objectively at the terms and conditions of
the contract." See note 27, Infra, for the relevant sections of the franchise
agreement
Spence v. Three Rivers Builders & Masonry Supply, Inc., 353 Mich. 120, 90
N.W.2d 873 (1958) (requirement of privity abandoned in products liability
claims for breach of implied warranty); Macres v. Coca-Cola Bottling Co., 290
Mich. 567, 287 N.W. 922 (1939) (requirement of privity abandoned in products
liability claims for negligence)
See Piercefield v. Remington Arms Co., Inc., 375 Mich. 85, 98-99, 133 N.W.2d
129, 135 (1965); Cova v. Harley Davidson Motor Co., 26 Mich.App. 602, 612,
182 N.W.2d 800, 806 (1970); Manzoni v. Detroit Coca-Cola Bottling Co., 363
Mich. 235, 109 N.W.2d 918 (1961). Michigan appears to have adopted the
Restatement of Torts' concept of strict liability for defective products "under
the guise" of the implied warranty theory. See Continental Cas. Co. v.
Westinghouse Elec. Corp., 327 F.Supp. 720, 723 (E.D.Mich.1970);
Restatement (Second) of Torts 402A (1965). See also Williams v. Detroit
Edison Co., 63 Mich.App. 559, 568-69 n.4, 234 N.W.2d 702, 707-08 n.4
(1975); Comment, Products Liability in Michigan: Implied Warranty, Strict
Tort or Both?, 15 Wayne L.Rev. 1558, 1564, 1573-74 n.108, 1580 (1969)
7
See Meli v. General Motors Corp., 37 Mich.App. 514, 195 N.W.2d 800 (1970)
See Paronson v. Construction Equip. Co., 386 Mich. 61, 191 N.W.2d 465
(1971). See also Murphy v. Eaton, Yale & Towne, Inc., 444 F.2d 317 (6th Cir.
1971)
Green v. Volkswagen of America, Inc., 485 F.2d 430, 434-35 (6th Cir. 1973);
Detroit & Milwaukee R. R. Co. v. Van Steinberg, 17 Mich. 99, 120-21 (1868)
10
11
But see City of Hartford v. Associated Constr. Co., 34 Conn.Supp. 204, 384
A.2d 390 (1978) (trademark licensor held liable under principles of strict
liability for property damage caused by defective roofing base product mixed,
sold and applied by trademark licensee); Kasel v. Remington Arms Co., Inc.,
24 Cal.App.3d 711, 101 Cal.Rptr. 314 (1972) (trademark licensor held liable
under principles of strict liability in tort for personal injuries caused by
defective shell manufactured by its trademark licensee). See also Carter v.
Bancroft & Sons Co., 360 F.Supp. 1103 (E.D.Pa.1973) (trademark licensor a
"seller" within meaning of Pennsylvania law)
12
13
217 N.Y. 382, 111 N.E. 1050 (1916). Accord, Comstock v. General Motors
Corp., 358 Mich. 163, 99 N.W.2d 627 (1959)
14
Cook v. Darling, 160 Mich. 475, 481, 125 N.W. 411 (1910)
15
See Drexel v. Union Prescription Centers, Inc., 582 F.2d 781 (3d Cir. 1978)
(franchisor of drug stores may be liable under doctrines of Respondeat superior
and apparent authority for death caused by druggist's error in filling
prescription); Note, Liability of a Franchisor for Acts of a Franchisee, supra
See Kasel v. Remington Arms Co., Inc., 24 Cal.App.3d 711, 101 Cal.Rptr. 314
(1972). See also Williams v. Detroit Edison Co., 63 Mich.App. 559, 568, 234
N.W.2d 702, 707 (1975)
17
18
19
20
See Wade, Strict Tort Liability for Products, supra note 18; Restatement
(Second) of Torts 402A, Comment c (1965)
21
See, e. g., Turner v. Bituminous Cas. Co., 397 Mich. 406, 244 N.W.2d 873
(1976); Piercefield v. Remington Arms Co., Inc., 375 Mich. 85, 133 N.W.2d
129 (1965); Livesley v. Continental Motors Corp., 331 Mich. 434, 49 N.W.2d
365 (1951); Dooms v. Stewart Bolling & Co., 68 Mich.App. 5, 241 N.W.2d
738 (1976); Cova v. Harley Davidson Motor Co., 26 Mich.App. 602, 182
N.W.2d 800 (1970); Serijanian v. Associated Material & Supply Co., 7
Mich.App. 725, 151 N.W.2d 345 (1967)
22
On the record before us in this case, there appears to be no reasonable basis for
the franchisor to dispute its right to control and its consent to the distribution of
the carton in commerce. In such a case, the Court need not put to the jury the
preliminary question whether the franchisor has sufficient control to justify
liabilities based on implied warranty under Michigan law. The parties have not
raised or briefed the question whether this is an issue for the court or for the
jury to decide when it is disputed, and we do not decide this question
23
White v. McLouth Steel Corp., 18 Mich.App. 688, 171 N.W.2d 602 (1969);
Smith v. Chippewa County Road Comm'rs., 5 Mich.App. 370, 146 N.W.2d 702
(1966), Aff'd, 381 Mich. 363, 161 N.W.2d 561 (1968); Whittemore v. Baxter
Laundry Co., 181 Mich. 564, 148 N.W. 437 (1914). See also Mulcahy v. Argo
Steel Constr. Co., 4 Mich.App. 116, 144 N.W.2d 614 (1966). For a listing of
the factors to be weighed in determining whether an activity is abnormally
dangerous See Restatement (Second) of Torts 520 (1977)
24
McHenry v. Ford Motor Co., 146 F.Supp. 896 (E.D.Mich.1956), Aff'd, 261
F.2d 833 (6th Cir. 1959)
25
See Insurance Co. of No. America v. Radiant Elec. Co., 55 Mich.App. 410, 222
N.W.2d 323 (1974); Buckeye Union Fire Ins. Co. v. Detroit Edison Co., 38
Mich.App. 325, 196 N.W.2d 316 (1972)
26
See, e.g., Pattinson v. Coca-Cola Bottling Co., 333 Mich. 253, 52 N.W.2d 688
(1952); Macres v. Coca-Cola Bottling Co., 290 Mich. 567, 287 N.W. 922
(1939)
27
Advertising and promotion material offered by the 7-Up Company to all its
bottlers will be purchased and used according to plans discussed and agreed
upon from time to time. Any advertising or promotion material other than that
obtained from the 7-Up Company must be approved by the 7-Up Company
before its use by the bottler
Cases, bottles, and crowns used for 7-Up will be of a type, style, size and
design approved by the 7-Up Company. No non-standard bottles or crowns will
be used except with the written permission of the 7-Up Company. 7-Up will be
sold in 7-Up cases at all times, but non-competitive drinks may be sold in 7-Up
cases, if such drinks are permitted under paragraph two above. Delivery trucks
for 7-Up will be decorated in standard 7-Up colors and according to approved
designs. Proper identification for 7-Up will be maintained on the bottling plant
at all times and uniforms of all employees will carry approved 7-Up emblems.
(Emphasis added.)
28
See, e. g., Talucci v. Archambault, 20 Mich.App. 153, 173 N.W.2d 740 (1969)
29
See Keeton, Conditional Fault in the Law of Torts, 72 Harv.L.Rev. 401 (1959);
Wade, Strict Liability For Products, supra note 18
30
"Any party may move to strike the third-party claim, or for its severance or
separate trial."
31
32
376 U.S. 315, 84 S.Ct. 748, 11 L.Ed.2d 732 (1963); Union Stock Yards Co. v.
Chicago, Burlington & Quincy R. R. Co., 196 U.S. 217, 25 S.Ct. 226, 49 L.Ed.
453 (1905); Dale v. Whiteman, 388 Mich. 698, 202 N.W.2d 797 (1972);
Restatement (Second) of Torts 886B(2)(e) (Tent. Draft No. 16, 1970);
Jensvold, A Modern Approach to Loss Allocation Among Tortfeasors in
Products Liability Cases, 58 Minn.L.Rev. 723 (1974); Phillips, Contribution
and Indemnity in Products Liability, 42 Tenn.L.Rev. 85 (1974); Note, The
Right to Indemnity in Products Liability Cases, 1964 Ill.L.F. 614; Annot., 28
A.L.R.3d 943 (1969)
33